Good morning and welcome to the PDL BioPharma earning third quarter 2009 and monetization update conference call. Today's call is being recorded. For opening remarks and introductions I would now like to turn the call over to Danielle Bertrand.

Danielle Bertrand

Thank you all for joining us today. Before we begin, let me remind you that the information we will cover today contains forward looking statements regarding our financial performance and other matters and our actual results may differ materially from those expressed or implied in the forward looking statements.

Factors that may cause differences between current expectations and actual results are described in our filing with the Securities and Exchange Commission, copies of which may be obtained in the investor section on our website at pdl.com.

The forward looking statements made in this presentation should be considered accurate only as of the data of this presentation and although we may elect to update forward looking statements from time to time in the future we specifically disclaim any duty or obligation to do so even as new information becomes available or other events occur in the future.

I'll now turn the call over to John McLaughlin, President and CEO of PDL BioPharma.

John P. McLaughlin

Thanks, Danielle, and good morning, everyone. With me today is Chris Larson our Vice President and Chief Financial Officer. In 2009 we focused on using our assets and the associated royalty revenues to maximize financial return to our stockholders. We completed our second dividend payment October 1st, 2009, and just this morning announced that we have priced a $300 million securitization transaction. The transaction will monetize 60% of the royalties from sales of current Genentech products including Avastin, Herceptin, Lucentis, Xolair, as well as 60% of any future products for which Genentech may take a license under our patents.

We intend to pay a significant portion of the proceeds from the securitization to our stockholders in the form of a special dividend, likely in December of this year. The total amount of this special cash dividend, along with the record and payment dates will be finalized at our upcoming board of director's meeting on November 11th and announced the next day.

As you know we've been evaluating a number of various monetization alternatives in this process and determined that a $300 million securitization is in the best interest of our stockholders. It allows us to pull some of our future income forward in time by distributing a substantial portion of the net proceeds of the securitization note and using our future royalties to pay off the principle and interest on the note.

Today we'll do the call in two parts. First, Chris Larson our CFO will review our results from the third quarter then I'll review some of the details of our recently priced securitization. In discussing the securitization I'll be referring to slides that are available for download from the following web address, and I apologize it's a bunch of numbers and letters here. The web address is http://66.215.142.25/InvestorPresentation.pdf. I'll now turn the call over to Chris.

Christine R. Larson

Thank you, John. As I discuss the financial results from the third quarter of 2009, please keep in mind that the comparative 2009 versus 2008 results represent only the new PDL, the PDL without our former commercial and biotech operations.

For the third quarter of 2009, total revenues from continuing operations were $71.4 million, a 4% increase from $68.8 million for the same period in 2008. Royalty revenues are based on second quarter product sales by PDL's licensees include $1.6 million for Synagis which is marketed by MedImmune.

Because approximately half of the underlying product sales on which we receive royalties are in currencies other than US dollars, I'd also like to point out that when compared to the prior year, royalty revenue for foreign source sales was negatively impacted by changes in foreign exchange rates.

Also impacting third quarter results, the effective royalty rate for sales of Avastin, Herceptin, Lucentis, and Xolair, declined from 1.94% in 2008 to 1.75% in 2009 because of overall sales growth for these products in 2009.

Total general and administrative expense from continuing operations for the third quarter of 2009 was $5.3 million as compared with $12 million for the same period of 2008. The decrease was primarily driven by the reduced cost structure of our Nevada operations where we currently have fewer than 10 employees.

Significant expense items for the third quarter of 2009 were legal fees of $3 million, compensation and benefits of $800,000, professional service fees and insurance of $700,000 and non-cash stock compensation costs of $200,000.

Net income for the third quarter of 2009 was $46.4 million or $0.29 per diluted shared as compared with $55.7 million in the same period of 2008 or $0.38 per diluted share. This decrease in net income, despite an increase in income before taxes, is due to increased income tax expense.

In 2009 we began accruing tax at the federal statutory rate of 35%. In 2008 taxes were accrued at the federal and state alternative minimum tax rates.

Net cash provided by operating activity was $132.8 million for the first nine months of 2009 as compared with $91.8 million for the same period in 2008.

As of September 30th, 2009, PDL had cash, cash equivalents, and short-term investments of $222.4 million as compared with $147.5 million at December 31st, 2008. I'd like to point out that the second dividend payment of $59.7 million paid on October 1st reduces the September 30th, 2009 cash balance.

With this second payment we have now paid two dividends of $0.50 per share to stockholders in 2009 and we'll hear in a few minutes from John we are not done paying dividends this year.

I'd now like to turn to our 2009 financial guidance. We are revising our revenue guidance for the year and anticipate revenue to be in the range of $310-$320 million. Our guidance now includes $42 million in sales of Synagis, of which approximately 90% has been received and recognized year to date. These sales were not included in the previous guidance because of ongoing legal disputes with MedImmune.

Our revised guidance reflects less than anticipated product sales growth for Avastin, Herceptin, and Tysabri. Also, anticipated royalties from sales of Avastin previously assumed that 50% of Avastin sales were for products made outside of the United States and for which we would have received a 3% royalty rate. This did not occur. Lastly, the market withdrawal of Raptiva earlier this year also contributed to less than anticipated royalty revenue.

Our 2009 general and administrative expense guidance remains unchanged and we expect these expenses to be in the range of $20-$22 million. Approximately half of our G&A expense is either legal, patent defense and other professional service fees.

We are projecting net income after taxes to be in the range of $187-$195 million and cash generated in 2009 is expected to be in the range of $258-$268 million. I'd now like to turn the call back to John.

John P. McLaughlin

Thanks, Chris. We'll now discuss our securitization. As I mentioned, I'll be referring to slides available from our web address. Slide two is a summary of our mission which is to manage our patent portfolio and license agreements to optimize return for our stockholders. At the outset, some were skeptical that we would or could deliver on that mission and it was understandable because there are few, if any, biotech companies with this kind of mission.

Slide three describes some of the steps that we have taken to implement our mission. Cutting expenses by reducing staff and relocating to a more favorable tax environment seeking to increase revenues through auditive existing licenses and discussion with potential new licensees, examining where there are more as sufficient corporate structures, and finally, exploring various means to leverage the time value of money to improve investment return for our stockholders, what we had generally described as monetization.

As slide four notes, we priced a $300 million securitization transaction today and expect that the transaction will close on next Monday, November 2nd. Slide four also makes the point that there are securities regulations governing what we can say until this transaction closes which may limit our ability to answer some questions today.

On slide five you can see the key terms of the securitization. We raised $300 million by issuing a note securitized by the right to receive 60% of the royalties on various products licensed under the queen patents by Genentech and sold by Genentech and Roche.

The interest rate or coupon on the note is 10.25%. The expected maturity of the note is December 2012. The principal on the note amortizes based on certain assumptions relating to future product sales, place of product manufacture and sale, and foreign currency rates. As you can see at the top of the slide we have created a new subsidiary called QHP Royalty Sub LLC into which 60% of the Genentech royalties will be paid directly to repay principle interest on the note. The remaining 40% of our royalties will continue to be paid to PDL directly.

Importantly the recourse for note holders is limited to the 60% of the royalties placed in this new subsidiary. On a consolidated basis, PDL will continue to recognize 100% of the Genentech royalties. Under the terms of the indenture, PDL can pay a premium and redeem the note early if it is in the best of interest of our stockholders to do so.

On slide six listed are four currently marketed Genentech and Roche products, 60% of which are being used to securitize and pay taxes related to the revenue as well as the principal and interest on the note. It is important to note that 60% of future Genentech and Roche products licensed under the queen patents would also be used to repay the note.

Slide seven details the next steps in this process. We expect to close the securitization on Monday, November 2nd, and will make an announcement to that effect after the financial markets close. We have our previously scheduled board of directors meeting on Wednesday, November 11th, during which we expect the directors to decide the total amount of special cash dividend to be paid as well as the recorded payment dates. We expect that both of those dates will be in December.

To possibly anticipate some of your questions we prepared slide eight. Simply put, when compared to other monetization options, a $300 million securitization was more advantageous to our stockholders in both terms and structures than the other approaches to monetization. Plus, this approach does not preclude us from pursuing other monetization transactions in the future which we may do.

If having the securitization note outstanding is an issue in a future monetization effort we can simply redeem the note by paying a nominal make hold premium. Perhaps the other question that some might have is why was the transaction sized at $300 million? As described on slide nine there were four main considerations and for those of you who have heard us talk about decision making of PDL previously, they will come as no surprise.

We looked at the IRR for our stockholders, NPF of dividends payable over life of the company, effect of the size and the transaction on our two sets of convertible notes, and control over the source of our revenues, namely our license agreements.

Most of these considerations are obvious, but the effects on our convertible notes might bear some explication. A very sizable transaction could have required PDL to redeem and/or diffuse one or both of the convertible notes. From a financial perspective this was not in the best interest of our stockholders. A transaction sized at $300 million balanced all of these considerations and preserved upside optionality in our future royalty revenues.

I'd now like to turn the call over to the operator for your questions.

Thanks. I have a question on the securitization and then I had a question on the quarter. First on the securitization, I'm just curious as to why you organized it in a subsidiary?

John P. McLaughlin

It's a structure that's commonly used in these for mainly to make sure it's bankruptcy remote. We're not planning on going bankrupt. We don’t think that's in the future, but for purposes of giving assurances to the note holders that they had access to the royalties, you set it up in a bankers remote sub which we now call QHP Royalties Sub LLC.

Joel Sendek – Lazard Capital Markets

Okay, got it. And so when you report your quarters in the future it will be on a consolidated basis?

John P. McLaughlin

That is correct.

Joel Sendek – Lazard Capital Markets

Okay. And then as far as the quarter is concerned, maybe you can answer this, maybe not, do you have any insight as to the production of Avastin ex-US? Was any of the drug made ex-US this year and do you anticipate that things might change and head there in the future.

John P. McLaughlin

So we get reports from Genentech where they do identify where the drug is made because that affects the royalty rates, and to date we have not seen any commercial supplies of Avastin made ex-US and that's one of the reasons why we're revising our guidance.

We have seen announcements, particularly the first half of 2009 report to stockholders by Roche where they indicated that they did intend to move some manufacturing overseas. We've seen subsequent announcements where they've talked about, either acquiring and/or transferring manufacturing, including Avastin and Lucentis, to mammalian cell and e coli plants respectively in Singapore. So they clearly are planning to move some overseas. They have not given much information to date in terms of timeline.

Joel Sendek – Lazard Capital Markets

Okay. And then my final question on the MedImmune front, are you including that in your guidance now just because we're three quarters of the way through the year and you already booked those royalties or is it because you think you’ve made some progress in the litigation.

John P. McLaughlin

We are clearly moving along the litigation, but it's still early days. But to the point of your observation, most of the money because it's a seasonal drug, comes in early. It's all in the door. We get some monies afterwards, but they're quite small in comparison from what we get earlier in the year. It's all in, we've got it, we booked it, that's why it's there.

Joel Sendek – Lazard Capital Markets

Great, thank you.

Operator

Your next question comes from the line of Jason Zhang with BMO Capital Markets.

Jason Zhang - BMO Capital Markets

Thanks. Question for John also on the securitization; so the subsidiary as you just described is a way to protect the note holder from possible bankruptcy of the parent company, but from PDLI's investment point of view, is the liability reduced or not or is it exactly the same as if you just issued the note to future holders by PDL? What's the implication here by setting up a subsidiary for PDLI investor, particularly at paying the principal in the future and the interest?

John P. McLaughlin

Sure, Jason. The note is securitized. Collateral is another way to think about it, by 60% of the royalties of the Genentech products and that's the basis for repaying the principal and interest as well as the taxes that are due on it. It's also a sole recourse in the sense that that is the sole recourse that the note holders have is for the 60% that's paid into that new subsidiary. They don't have access, for example, to the other 40% of the Genentech royalties or royalties on other products. So the recourse for the note holders is limited to the 60%.

Now, in structuring the note we have tried to be conservative in terms of the assumptions we made on product sales, place of manufacture, sale and currency rates, obviously to make sure that there's ample resources to pay for the note.

Jason Zhang - BMO Capital Markets

Okay. So the way to understand it as, I guess, an advantage for PDL investor is that you're not securing this note with the entire PDL asset, only just 50% of the (inaudible) royalty from Genentech product sales.

John P. McLaughlin

That is correct, but the figure is 60%.

Jason Zhang - BMO Capital Markets

Okay, 60%, I am sorry. Another way — I don't have access to the presentation so I don't have all the details, but if someone is to use this as a valuation for the future royalty payment, I know the asset is not necessarily equal to the note value, but people could argue that okay, if you think 60% of the Genentech royalty was $300 million, then the entire Genentech royalty would be $500 million. That seems to be rather cheap.

John P. McLaughlin

Yeah, Jason. And I understand your logic and it's a good thought. It's probably not the way to think about it for the following reason; so in structuring the securitization, that is the note and the amount we pay, we really were pretty conservative in terms of making sure that there were ample resources there to pay the principal and pay the note and as you'll see when you get a chance to see the slides, one of the things you look at is what is the loan to value, and even making very conservative assumptions about what future sales would be, where the place and manufacture in sale is which affects the royalty rate we get paid, as well as what the future currency exchanges rates might look like, the loan to value is about 41.2% on an NPV basis.

Jason Zhang - BMO Capital Markets

I guess another way to think is that the equity investor would have to value PDI more than what the bondholder values the company at or would value the royalties at.

John P. McLaughlin

That's correct. What I'm basically saying to you is the value of the royalty stream is much greater than the calculation that you just suggested. I understand why you were thinking about it that way or could think about it that way, but it's actually much higher than that calculation would lead you to conclude. And as I say, the LTV is about — a little over 41% loan to value.

Hi, guys. Thanks for taking my question. First of all, congratulations on getting this monetization done, I know that's been a major goal of yours. Can you help us understand a little bit more, John, you've mentioned the different structures — other things that you considered and whether or not there were multiple groups at the table for this particular structure?

John P. McLaughlin

So unfortunately there are limits right now as to what I can say about the securitization until it closes. We will be doing a press release after it closes on Monday and unfortunately I can't say much more about that. In terms of other approaches, we have talked about the fact that we were going to talk to potential royalty buyers, were going to talk to licensees, we've had those conversations, frankly we'll continue to have those conversations, but at the current time this looked like the best structure in terms of the thing we talked about; IRR to our shareholders, NPV to our shareholders, as well as some of the other considerations that we've thought about.

That's not to say that we're done. To be clear, we're not done. We'll continue to have some conversations. I'm also a little limited in what we can say because all of those conversations are under confidentiality and frankly we want to respect that and have more conversations with those folks in the future.

Charles Duncan - JMP Securities

Okay. And then a follow on to the valuation questions that Jason had, I too was kind of thinking about it in the same way he was and this loan to value concept is intriguing. Can you give us some sense as to what the biggest driver on the 41% — what is a reconciliation? What's kind of the biggest factor that reconciles the equity value to the loan value?

John P. McLaughlin

So in terms of thinking about the loan to value, it's simply basically an NPV of what we project — net present value of what we project to be the cash flows over the period of time with the notes driven largely by obviously the biggest selling products; Avastin and Herceptin, to a lesser extent Xolair, Lucentis — as we noted there is the potential for future products in there, but given the duration of the note or likely duration of the note, probably future products aren't going to be material in terms of calculating that and as you'll see when you get a chance to look at the slides, the duration of the note is — Chris, help me out what is it?

Christine R. Larson

Two years.

John P. McLaughlin

A little over two years. So when you're thinking about loan to value you need to think about both the 41%, but also the fact that the duration of note is about two years.

Charles Duncan - JMP Securities

John, perhaps I can ask it a different way. You said that you were conservative in projecting how to be able to take care of the note, what are the biggest points of conservatism that you see in terms of the royalty stream?

John P. McLaughlin

Got it, sorry. So the biggest points of conservative are in terms of the sales projections, in terms of where the drug is made. As Joel asked in an earlier question we were talking about how fast are they moving manufacturing overseas where we are paid a royalty at a higher rate, a flat 3%. So we were fairly conservative in those assumptions. And then also because about a little over 50% of our royalties are baed on ex-US sales, currency exchange rates make a big difference so it's those three factors. We were careful in terms of sales growth; we were careful in terms of place of manufacture and sale which affects our royalty rate and we tried to be reasonably thoughtful about currency exchange rates. Chris, is there something you want to add?

Christine R. Larson

Yeah. The other thing is we only did sales projections through 2014 and there is a potential for sales to continue to receive royalties after that time, but our sales projections only went out those five years.

Charles Duncan - JMP Securities

Got it. That's really one of the points that I was looking for. And my final question is with regard to the nominal make hold payment, could you quantify that a little bit better for us? I too don't have the slides in front of me.

Christine R. Larson

So the nominal make hold payment is Treasury plus 2% and the net present value of the future payment should we elect to redeem them early, we would take the present value of those payments at that rate and that would determine how much our prepayment was in total.

Charles Duncan - JMP Securities

Okay, good deal. Thanks for the added color and congrats on getting that done.

John P. McLaughlin

Thank you.

Operator

Your next question comes from the line of Steven Cutler of Longacre Fund Management.

Steven Cutler - Longacre Fund Management

Yes, hi. Thanks for taking my call. Just a couple of quick questions on the securitization; firstly, you said it was a two year note, but just looking at the press release it said it matures in 2015 so just trying to reconcile the difference there. Also wanted to know if you're planning on having the notes registered and who's also the underwriter on the deal? Thank you.

John P. McLaughlin

So let me take a couple of those and I'll ask Chris to take a couple of those. Because the transaction hasn't closed yet we are precluded by the Securities laws from identifying the underwriter at this point. Chris, do you want to take the other two questions in terms of note registration and —

Christine R. Larson

So the note will not be registered, it was a private placement. And secondly, the way in which these transactions work is again 60% of the royalties do go into the subsidiary and repayment of principal and interest is based on the actual royalty results and so if royalties are less than anticipated the principal payment would be somewhat less, if it's higher than anticipated it would be somewhat more. So although there’s a final maturity in 2015, in fact based on our royalty flow projections we would anticipate that the note would be paid within three years and because it's amortization, the duration is actually about two years.

Steven Cutler - Longacre Fund Management

Okay. Thank you very much.

Operator

With no further questions in queue I would now like to turn the call back to Mr. John McLaughlin for closing remarks.

John P. McLaughlin

Thank you all for joining us on this call this morning and apologize to all that we had to issue a press release late towards the end of the day to shift the earnings call, but we decided with the appendices of the securitization to kind of wrap it all into one. We do look forward to seeing many of you at upcoming conferences including the Oppenheimer Conference next week and have a good day, all. Thank you.

Operator

Ladies and gentlemen, thank you for your participation in today's conference. This concludes your presentation. You may now disconnect. Good day.

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